The virtual meeting software provider could drop another 50 to 70 points before bottoming out.
Zoom Video Communications Inc. (ZM) resumed an aggressive decline in Monday’s U.S. session, dropping more than 25 points to 377, after Moderna Inc. (MRNA) reported 94% efficacy in its vaccine candidate. The stock bounced about 11 points below that price level last week after selling off more than 200 points and 37% in just 17 trading days. Overbought technical readings triggered the first part of the furious downdraft while Pfizer Inc.’s (PFE) blockbuster vaccine news prompted the second.
Zoom Enters Steep Correction
The COVID-19 beneficiary posted a 2020 return in excess of 850% into the Oct. 19 all-time high at 588, underpinned by its wildly popular Zoom virtual meeting software. However, market players are now turning their attention to a post-pandemic world that permits more human interaction, both in the work place and between family and friends. And, despite more than 200 points of downside, the stock’s price-to earnings ratio (P/E) still stands at an astronomical 482.
Zoom just took a big step in alleviating a series of security and privacy concerns that arose in the first quarter when the software first gained popularity, settling a Federal Trade Commission (FTC) complaint that requires the company to “implement a robust information security program to settle allegations that the video conferencing provider engaged in a series of deceptive and unfair practices that undermined the security of its users”.
Wall Street And Technical Outlook
Wall Street has been quiet as a church mouse since the selloff began in October, issuing no tier one upgrades or downgrades. Consensus now stands at a cautious ‘Moderate Buy’ rating, based upon 12 ‘Buy’, 12 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets finally match reality after the downdraft, with a low of $315 and a Street-high $611, while the stock is now trading about $90 below the median $478 target.
The stock pulled back to the 50-day moving average in early November and broke down last week, dropping to a 2-month low. Meanwhile, the Sept. 1 gap between 326 and 410 remains partially unfilled, with the bottom of the big hole marking a magnetic target and potential buying opportunity. The narrowly-aligned .786 Fibonacci rally retracement level and 200-day moving average near 310 could offer even lower risk entry for conservative market players.